India’s industrial production clocked a mild improvement with an annualized growth print of 3.5% in Oct-24 vs. 3.1% in Sep-24. The headline print was broadly in line with market consensus.

Key highlights 

• On a sequential basis, IIP rose by 2.2% MoM in Oct-24, better than the series median expansion of 1.8% usually seen in the month of October. 
  1. Among the 25 sub sectors of IIP, 13 registered a sequential expansion while 12 saw a sequential contraction. 
• Sectoral classification:
  1. While the improvement in annualized growth was supported by all the three, the manufacturing sector recorded the fastest pace of expansion (4.1% YoY). 
  2. Within the manufacturing industries, the top three performers on an annualized basis were Electrical equipment, Furniture, and Other transport equipment. 
  3. On the other hand, the three worst performing sectors were Miscellaneous manufacturing items, Printing and reproduction of recorded media, and Leather & related products. 
• On use-based classification, all the major components except Consumer durables showed an improvement in annualized growth performance. Nevertheless, Consumer durables still outperformed others with a 5.9% YoY growth while Primary Goods was a laggard with 2.6% YoY growth. 

Outlook

The Oct-24 print for IIP offers moderate comfort. At the outset, we note that despite an unfavourable statistical base and lesser number of working days, headline IIP managed to post moderate gains on annualized basis. Secondly, coming on the heels of a dismal performance in Q2 FY25 (that saw IIP clock a growth rate of 2.6% YoY), the Oct-24 print is mildly encouraging as it provides some evidence of festive season buoyancy.

• Notably, growth in consumption oriented industrial output (consumer durables and non-durables) exceeded investment oriented industrial production (capital goods and infrastructure & construction goods) for the second consecutive month.
• On one hand, while this indicates the festive related support for consumption demand, it also underscores the weakness in capex spending by the central and state governments put together. Capex spending by general government has contracted by 10.4% YoY between Apr-Oct FY25 compared to a robust expansion of 40.1% seen in the corresponding period in FY24.

Going forward, the anticipated recovery in rural demand, supported by a healthy rabi sowing activity, should be supportive of consumer non-durables. At the same time, urban demand is likely to remain adversely impacted due to the lagged effects of past policy tightening. This could weigh upon consumer durables production.

Further, export oriented industrial production will be under spotlight on account of the likelihood of US president-elect Trump pressing tariffs against key trading partners (up to 60% tariffs on all imports from China, 25% imports on all imports from Mexico and Canada, and 10-20% tariffs on imports from other countries) in 2025. If implemented, it is bound to stoke retaliatory action by partner countries. On net basis, such an outcome can be expected to increase global economic uncertainty and prove detrimental for investments and global trade activity over the medium to long run.

Overall, the industrial outlook appears mixed. From a GDP perspective, post the sharp negative surprise in Q2 FY25 data, we revised lower our full year growth estimate to 6.4%.  With input price inflation likely to swing from negative in FY24 to positive in FY25 (we expect WPI inflation to increase to 2.5% in FY25 from -0.7% in FY24), the industry value-add could remain under pressure amidst margin compression. 

Says Suman Chowdhury, Chief Economist and Executive Director, Acuité Ratings & Research “Industrial production in October 2024 showed a slight improvement from September at 3.5% (vs 3.1%), with moderate upticks in all sectors, manufacturing, mining as well as electricity.  However, growth is much slower than in October 2023, which saw an uptick of 11.9% and highlights the impact of the base factor.

The use-based classification also shows positive growth, with consumer durables dipping slightly compared to last month (5.9% vs 6.5%) but still leading growth alongside infrastructure goods (4.0%).For the April-Oct 2024 period, industrial output grew by 4.0%, albeit materially weaker than the 7.0% growth seen during the same period.

We expect IIP growth to pick up in H2FY25 on the back of an improvement in consumer demand, supported by the wedding season and the kharif harvest. Further, government spending particularly on capital expenditure is also likely to see a rapid uptick over the next few months. Nevertheless, the annualized growth in IIP for FY25 is set to slow down to around 4.5% given the weaker growth in H1.”

Table 1: Annualized growth in IIP and its key component

Chart 1: Reflective of rural recovery, consumer non-durables have started outperforming consumer durables